This debt free story was written by Brent N. Reed, PharmD, BCPS-AQ Cardiology, FAHA. Dr. Reed received his Doctor of Pharmacy from the University of Tennessee College of Pharmacy in Memphis, TN and then completed a pharmacy practice residency and cardiology specialty residency at the University of North Carolina Hospitals in Chapel Hill, NC. He currently serves as an assistant professor at the University of Maryland School of Pharmacy and a clinical pharmacy specialist at the University of Maryland Medical Center, where he practices in the areas of advanced heart failure and cardiac transplantation.
As a faculty member at the University of Maryland School of Pharmacy, I’m frequently reminded of the concern students have for their loan debt. In one exercise in particular, I ask first-year students in my professionalism course to reflect on the opportunities and challenges facing them upon graduation, and loan debt inevitably rises to the top. The shadow it casts is so dreadful that students often cite it as a reason for ruling out potential career opportunities (e.g., post-graduate fellowship or residency training) that they might have otherwise considered.
I faced many of these same challenges when I first walked across the stage and accepted my diploma, but I’m here to share a reason to stay optimistic – it can be done, no matter which career path you choose. This past July, after two years of postgraduate training and five years of throwing every cent at my student loans, I’m proud to finally be debt-free. Below is the story of how I did it.
I graduated pharmacy school with a little over $90,000 in debt. Although I was fortunate to have not had any debt from my undergraduate studies, most of my loans from pharmacy school had interest rates of at least 7% – hardly what many would call “good debt.” Despite this impending burden, I was determined to complete residency training, which provided me several repayment options since I would only be making about $35,000 per year. By the time I entered residency in 2009, few lenders offered a deferment option (i.e., where trainees are not required to pay and their loans do not accrue interest), and mine was no exception. However, forbearance was an option for me, where I could opt out of making payments (which I could not afford at the time anyway), but my loans would continue to accrue interest. Doubting that there would be any point during residency where I would be able to make the minimum payment, I selected this option. Over the course of my two years of residency training, my debt grew to about $102,000.
Even though this was a little overwhelming at the time, I had made two important realizations. First, my parents were still only making about $35,000 per year as teachers of over 20 years (this is in the South, after all), and they had still been able to pay off their student loans, purchase a home, and raise two children. Second, I had lived fairly comfortably off of my resident salary. Now that I would be earning over three-fold that amount as a pharmacist, I realized that I could put a significant amount of that towards my student loans each month. In that moment, my strategy for loan repayment was born – I was going to live like a resident for the next five years.
Admittedly, living like a resident when it was no longer necessary did require some discipline. During my training, I avoided spending a lot of money because I simply could not afford to; as a pharmacist, it took willpower to make these same decisions. For example, it meant purchasing a reliable but economical car and renting a comfortable but not luxurious apartment. I also needed to account for several new expenses, including a car payment and monthly contributions to my emergency savings account. Nonetheless, I created a monthly budget using what I required during residency as a guide. I did splurge on a couple of items – a gym membership and music lessons, namely – but I considered these long-term investments in my health and well-being and well worth the expense. Even after accounting for these and other expenses, I not only had enough money to make minimum payments on my loans – I had double the amount.
To put this extra money to work, I used the avalanche approach, which is similar to the snowball method popularized by Dave Ramsey, only in the opposite direction. I had eight separate loans, each with a slightly different principal and interest, and my monthly minimum payment was the combined total of the minimum payments for each individual loan. Each month, after paying the combined total, I would put any remaining money towards the individual loan with the largest principle and highest interest rate. I continued to pay down this loan each month with extra money until it was completely paid off. Whatever amount that freed up in the total minimum payment (a substantial amount since it originally had the largest principal and highest interest rate), I would then add that to the extra money I would pay towards the loan with the next largest principle and next highest interest rate. Although the total amount of money I paid each month never changed, the amount I was putting towards the minimum payment decreased over time as the amount of extra money increased. Although it took me over a year to completely pay down the first loan, I paid off my last loan in less than four months.
To help preserve the extra money I could put towards my loans, I set-up autopay for my monthly bills and created automatic savings accounts to transfer funds from my main account with each paycheck. I had automatic accounts set up for emergency savings, professional use (e.g., memberships, conferences), personal use (i.e., large but infrequent personal expenses such as vacations, gifts, etc.), and extra loan payments (for the strategy outlined above). Automatically transferring these funds to separate accounts minimized the amount of money left over for indiscriminate purchases. Similarly, any unexpected windfalls (e.g., tax returns) were immediately distributed among savings accounts or put towards my loans so as not to influence my long-term spending habits.
In conclusion, it might seem like the strategy of living like a resident meant denying myself a lot of enjoyment for the first five years after residency. Although it certainly influenced my financial decision-making (for example, taking domestic rather than overseas vacations), I saw it more as a deferral rather than a denial. Besides, five years is hardly a price to pay for the sense of relief and financial security that comes with no longer seeing a loan bill every month. Although postgraduate training prevented me from being able to tackle my loans immediately after graduation, it did allow me to pursue a personally satisfying career and it taught me the discipline necessary for an effective long-term loan repayment strategy.